GSK Pharma net drops 90% on Ranitidine unit related impairment

New Delhi: A one-time loss related to the realisation of the value of Glaxosmithkline Pharmaceuticals Ltd's Vemgal unit, which was used for producing the controversial drug Ranitidine, weighed on the company's earnings in Jan-Mar.

The drugmaker's consolidated net profit for the March quarter plunged a whopping 89.6% on year to 143.3 mln rupees. The company accrued an exceptional loss of 1.19 bln rupees during the quarter, which included costs related to Vemgal assets, which were still recognised on its accounts, net of writing back some provisions taken last financial year, said analysts.

GSK Pharma had to recall Zinetac, a Ranitidine generic, af ter the presence of a cancer-causing substance in such medicines caused global alarm last year.

Consequently, the company's facility was under-utilised as manufacturing of the drug was halted, which forced it to explore other strategic options for the site. To recover some of this loss, in late March, the company decided to sell the Vemgal unit to Hetero Labs Ltd for 1.8 bln rupees.

Analysts had said this sale would spell losses for the company as the rate at which the deal was struck was lower than the asset's existing book value. Af ter taking an over 6.4-bln-rupee impairment charge in 2019-20 (Apr-Mar), the book value of the Vemgal assets was around 3.75 bln rupees, ICICI Securities said in a report af ter the deal was announced. remains unclear if the company will have to incur any further impairment costs in the coming quarters. The deal with Hetero Labs is expected to be completed by September. Other metrics for the quarter, such as sales, suggested the company's operations benefited from the rise in demand for COVID-related drugs in India.

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